Archive for January, 2014

January 20, 2014

The Minimum Essential Payroll KPI’s


As a Payroll Manager, you are responsible for managing what is the greatest cost of most organisations and with that comes the continued attention of Finance, C-Level Management and the Board.  You are being monitored and usually measured on cost and efficiency and you are always at risk of being outsourced to a more viable option.

As a manager of a service offering in your organisation, you need to be a “business” manager who is focused on achieving organisational goals and outcomes, on providing service to your “customers” that could not possibly be matched by competitors and on the cost of payroll production.

If you are not already measuring, monitoring and acting upon Key Performance Indicators (KPI’s) in your payroll service, you need to start NOW.

KPI’s are quantifiable indicators that reflect the organisational goals and are supposed to be drivers of change and measures of progress.

Payroll has long been viewed as a purely transactional processing cost centre, whose only organisational goals are to minimise the cost of processing and keep payroll noise to an absolute minimum.  While these are primary goals for cost reasons, many other complexities come into play as to why payroll costs what it does.

Only by measuring and taking calculated steps to improve the KPI’s, will you be able to truly reduce payroll costs, as many of the reasons for the cost of payroll are completely outside of the Payroll Managers control such as data integrity, industrial complexity and statutory requirements for example.

Personally, I have a few issues with the apparent simplicity of payroll KPI’s and the comparison of organisations against each other, or against best practices.  The measurement of cost, transaction volumes and time to complete tasks alone does not truly measure the performance of a payroll team as there are an abundance of variables coming into play for every number recorded.

No two payroll operations are like for like.  There are different operating systems, differing policies and company practices, differing complexities and differing definitions of end to end payroll.

I also believe that the global standard for compilation of payroll KPI data misses three very important categories: Service Excellence, Best Practice Business Processes and Compliance.

A payroll service’s primary function is to produce on-time, compliant employee payments… but getting the money into employee’s hands is far from the end of the payroll process.  Management and statutory reporting can be a huge portion of a payroll team’s workload, as can be the day to day enquiries of the workforce and other organisations relating to employee payments and financial matters.

Additionally, every payroll service on this earth, no matter their size, should aim to have best practice documented processes, checklists, segregations of duty and audit steps throughout the process, so this should be included in the KPI’s and be a major objective of the payroll team and the organisation.

These are the Minimum KPI’s Payroll Should Be Measuring as per global industry practice:

(HR/P&C KPI’s are excluded as the focus is solely on payroll production)

THE COST OF PAYROLL – intends to measure the cost to business of the end to end payroll process, which usually encompasses the sum total of wage and operating costs of the payroll team and the cost of implementing and maintaining HRIS and related systems.  For a true cost of end to end payroll, all people in the organisation that contribute to any component of the end to end payroll process should be identified and accounted for such as:

  • IT costs involved in implementation and maintenance of HRIS and related systems
  • Payroll Accounting costs
  • The wages cost of staff compiling timesheets for payroll input
  • Supervisors and management wages cost for time spent on payroll processing and enquiries
  • HR/P&C wages cost for time spent on the transactional components of payroll processing

The combined results of these metrics will assist you to determine the cost drivers of payroll production:

  • Cost of Payroll (Total Wage Cost All Employees) as a Percentage of Revenue
  • Number of Payroll Processes Per Annum
  • Cost of Payroll Production Per Employee Serviced  (Total Operating Cost of Payroll Service per employee serviced by the payroll)
  • Cost of Payroll Production per Payroll FTE

PRODUCTIVITY – intends to measure how productive the payroll team as a whole and individually are, by measuring the ratio of payroll people to the number of employees being serviced.  Additional metrics allow identification of issues affecting productivity.  Standard metrics include:

  • Number of Pays Processed Per Payroll Processor FTE
  • Number of Out of Cycle Payments Processed
  • Number of Retrospective Payments
  • Number of payments requiring manual intervention or follow up
  • Input that contains unclean data

EFFECTIVENESS – intends to measure whether the payroll team are achieving the required outcomes (on-time, compliant payroll production) and identify factors that may be inhibiting their effectiveness.  There are a host of metrics utilised to measure effectiveness and include:

  • Error Rate including Overpayments
  • Payroll Staff Turnover
  • Volume of enquiries and the speed at which they are responded to
  • Automations (including metrics on production time on manual forms/transactions, employee self-service, payroll processing automations, reporting, payslip production)
  • Data Integrity
  • HRIS and related Systems Integration

Additional KPI’s That We As an Industry Should Be Advocating:

SERVICE – regular measurement of the perception of service by those we serve, including:

  • A regular rating by employees to establish the current perceived level of service and identify improvement areas (perceived or real)
  • A regular rating by your internal customers and by supervisors and management on their perception of the payroll service
  • Regular ratings against the achievement of Service Level Agreements
  • Compilation of data on queries such as long term unresolved employee queries, union action as a result of payroll actions and other day to day categories of enquiry in order to identify service demands and improvement areas

COMPLIANCE – as a core function of the payroll service, measurement of the continued achievement of organisational and statutory compliance including:

  • Outcomes of audit reports
  • Compliance with company policies and procedures
  • Achievement of management reporting deadlines
  • Correct, on time and compliant statutory reporting and payments
  • Achievement against monthly internal compliance reviews
  • Breaches of employment legislation , award requirements, etc
  • Breaches of service level agreements

BEST PRACTICE BUSINESS PROCESSES – there is enough global evidence, supporting legislation and standards that demand that all payrolls should be produced utilising best practice business processes to ensure corporate governance, financial transaction security and so on.  The measurement of the payroll service’s achievement towards best practice business processes should identify:

  • All processes and sub processes in the production of payroll are documented and reviewed regularly for compliance and best practice
  • Documented checklists are utilised for payroll processes and signed off by relevant overseers at each vital step of the payroll process
  • Payroll balancing is exhaustive and each authoriser throughout the process understands the full extent of what they are authorising
  • Segregation of duties is well documented, authorisations are achieved and a process for monitoring each step of the payroll process exists
  • Error identification and fraud prevention process checkpoints are  included throughout the processes and checklists
  • Business policies are documented for information security, confidentiality, privacy, authorisations, etc and the requirements of each policy are implemented within the processes

If your payroll service is measuring and monitoring the metrics and KPI’s listed, I applaud your efforts!  If you are part way there, then I urge you to build in these additional KPI’s and identify further improvement areas for your service.  If you are not measuring, open up a new excel spreadsheet NOW! and start pumping in the numbers you need to measure your base line data.

The data on its own though is insufficient, as you need to identify targets for each of your KPI’s and monitor these as you implement your improvements, to ensure your efforts are actually achieving the intended outcomes.

Many payroll services benchmark themselves against others, or against industry, country or global best practice KPI’s.  Before deciding how you will utilise benchmarking, it is important to understand the dynamics behind the numbers.  Essential to your understanding though, is that you must drill down into the numbers to understand the measurement method of the benchmarks you apply; the complexities of the organisations you measure yourself against; the HRIS systems and processes in place; and a host of other reasons that another payroll service may be producing twice as many employee payments as your team, with half the staff.

Remembering that KPI’s are quantifiable indicators that reflect the organisational goals and are supposed to be drivers of change and measures of progress, it is imperative that you understand what the goals actually are for the payroll service and include measurements that will provide actionable data that identifies what issues exist and what improvements need to be implemented.

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2014 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

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January 13, 2014

The #1 Unknown Australian Salary Packaging Consequence Your Employees Need to Know About


While business is to be commended for the efforts to share the benefits of salary packaging with employees across the board, it still confounds me that employees are entering into salary packaging arrangements oblivious to the REAL financial impact on their finances.

If you are going to offer a broad based Salary Packaging program to your employees, you MUST educate your employees, or at the very least strongly encourage them to seek independent financial advice from the ATO, their financial planner, tax adviser or accountant.  An employee will be far more encouraged to seek advice, if they understand along with the pros, that there are some serious cons.

The greatest unknown by most Australian employees is the impact of Reportable Fringe Benefits on their assessable income and the consequence of that increased assessable income on their entitlement to government benefits, multiple tax offsets, child support obligations and entitlements and HELP/SFSS repayment calculations.

Employers present calculations to the employees showing the net pay difference between a packaged and non-packaged salary, often without any reference to the potential consequences of their increased Reportable Fringe Benefits amount on their payment summaries.  Employees sign up to the salary packaging programme wholeheartedly, rejoicing in their “extra” income… until they submit their tax return.

Once their tax return is processed, many employees learn a very hard lesson.  Their windfall in undertaking salary packaging, has just earned them lost tax benefits; or an increased debt to the ATO for HELP/SFSS; or the Child Support Agency advises they now owe considerably more Child Support or will receive considerably less; or Human Services advises they owe for overpaid benefits.

While some payroll people may think that the likelihood of this consequence is minimal, consider the number of employees you have with HELP/SFSS debts; that we live in a society where almost half of marriages end in divorce; and that a majority of families with children under the age of 18 are entitled to Family Assistance.

Over the years I’ve implemented this in a few businesses and employees still come to the payroll team at year end and ask why payroll didn’t take enough tax, or why they weren’t advised, when they quite obviously were.  To counteract the employees who don’t read fine print, simply ensure this information is not fine print.  A one page document that they sign and date, prior to undertaking any salary packaging, that clearly outlines the potential consequences and that they need to seek independent financial advice, is all you can do without physically clubbing them over the head or booking the appointment with the financial planner for them.

I can only encourage you to make the effort to implement this information into your salary packaging documentation and enable your employees to ask better questions of their financial advisers and to make more informed decisions.  You will be thanked for it by the reduction in furious or devastated employees, waving their Payment Summaries around at tax time.

This is what you MUST make your employees aware of as a minimum:

Salary Packaging may (because some items are classified as “exempt benefits”) result in an increased “Reportable Fringe Benefits” value on your Payment Summary, which will be used (in addition to your Gross Earnings) to calculate your assessable income for the following:

  • Medicare Levy Surcharge
  • Medicare Levy Surcharge lump sum payment in arrears tax offset
  • Deductions for personal super contributions
  • Super co-contribution
  • Tax offset for contributions to your spouse’s super
  • Mature age worker tax offset
  • Higher Education Loan Program (HELP) and Financial Supplement (SFSS) repayments
  • Dependent tax offsets, including
    • Dependent spouse
    • Child-housekeeper
    • Parent, spouse’s parent or invalid relative
  • Housekeeper tax offset
  • Senior Australians tax offset
  • Pensioner tax offset
  • Your child support obligations and entitlements
  • Your entitlement to certain income-tested government benefits (including Family Assistance)

Before undertaking salary packaging, you are advised to seek independent financial advice from the ATO, a financial planner, tax adviser or accountant.  If any of the above income assessable items affect you, it is imperative that you seek independent financial advice on the impact of salary packaging and increased Reportable Benefits.

The Fringe Benefits Tax year is April 01 to March 31 each year.  The total Reportable Fringe Benefits for this period will be documented on your Payment Summary the following June.

Employees who receive individual fringe benefits of $2,000 or more in a Fringe Benefits Tax year, will have the “grossed up” value of the fringe benefits reported on their Payment Summary.  This is the Reportable Fringe Benefit and the “grossed up” rate is 1.8692.

Therefore, if you receive $10,000 in taxable Fringe Benefits for example, this amount is multiplied (“grossed up”) by 1.8692 and becomes your Reportable Benefits total of $18,692 on your Payment Summary.

The additional amount of $18,692 is added to your gross earnings to calculate your income tested entitlements, outstandings and tax offsets as listed above.

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2013 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

January 2, 2014

Are Employers Missing The Mark When They Demand Particular HRIS System Experience of Candidate Payroll Managers?


This question was raised with me by an experienced and respected Australian Payroll Professional and my immediate response to the question was “Yep!  I’ve been there!”…

Why do so many employers base the position criteria around particular HRIS systems, thus eliminating many otherwise perfectly qualified payroll professionals from applying?

I would love to learn the views of both payroll managers and those responsible for recruiting them, as to whether there are valid reasons to decree specific HRIS systems experience of payroll management candidates.

Although my own resume clearly shows that I have vast experience with a diverse range of HRIS systems and I’ve achieved significant improvement outcomes with each of them, I too have been rejected from the candidate pool from the outset because I can’t tick the particular HRIS system experience box demanded by certain job advertisements.

My view is that there are certainly roles and circumstances where this demand is warranted, such as stand-alone payrolls where there is no handover time and experience is required to hit the ground running, or for some HRIS system implementations that require exemplary knowledge of a particular HRIS system to achieve the outcomes for the business (with a big HOWEVER here, because successful HRIS system implementation requires a great deal more than just expertise in a HRIS system).

The greatest considerations of employers/recruiters, in my mind, before a job advertisement stipulates that experience in a certain HRIS system is a pre-requisite, should be:

  1. What are the outcomes required of the Payroll Manager in relation to the HRIS system?
  2. Which HRIS systems are comparable to the one in place at this employer?
  3. How can candidates demonstrate their cross functional capabilities from comparable HRIS systems?
  4. How do I as a recruiter, not exclude the best candidates from applying for this position?

The experience that should be sought from Payroll Management candidates should be based purely on their ability to achieve the outcomes of the particular role they are applying for and if a candidate can demonstrate they have similar or multiple HRIS system experience, they may actually be a far better candidate than twenty others with ten years user experience of the HRIS system used within the employing business.

What are the outcomes required of the Payroll Manager in relation to the HRIS system?

The following questions should be raised in order to determine the HRIS system specific position requirements and outcomes:

  • What exactly do we require the candidate to know about the HRIS system in question?
  • Why is the candidate required to possess certain HRIS systems knowledge?
  • Will they be processing the payroll?
  • Will they be documenting business processes?
  • Will they be required to maximise the functionality and efficiency of the HRIS system?
  • Will the candidate have a handover period or will they be thrown into the fire?
  • Does the candidate need to understand HRIS system configuration?
  • Will the candidate be required to create/write reports within the HRIS system?
  • What level of skill and experience is required in HRIS Data Analysis?
  • Will the candidate be required to maximise the efficiency of the HRIS system and build automations?
  • Do we have other Subject Matter Experts in the business with the required HRIS systems knowledge?

The outcomes required of the candidate in relation to the HRIS system will determine whether the candidate really needs to have experience in a particular system; whether proven experience in a similar operating system will be suitable; or whether it is even a requirement worth asking for.

Which HRIS systems are comparable to the one in place at this employer?

Payroll Software, SaaS providers and HRIS systems around the globe offer a multitude of points of difference but essentially, payroll is payroll and if you understand payroll, accounting and HRIS systems administration, there shouldn’t be a payroll/HRIS system that can’t be learned on the run by a professional payroll manager.

For those who can’t imagine how this may be possible, here are just some of the ways that professionals manage to learn new systems on the fly:

  • There’s always a Help button and usually a fairly decent user manual
  • More often than not there is a hefty support contract that can be utilised to seek additional information
  • Utilising Subject Matter Experts within the business
  • User groups, networking groups, forums and colleagues within the industry
  • Trusty old Google provides a world of answers
  • Payrollers are hoarders and there’s always someone who has the report writing training manual, configuration documentation or other precise information you are seeking
  • Most HRIS systems have a functional test database where professionals can model and test the outcomes they are attempting to implement

How can candidates demonstrate their cross functional capabilities?

Just because a group of candidates may have worked with a single system for the last 10 years, this does not automatically validate their ability to maximise HRIS system efficiencies, create reports or undertake data integrity validation.  It is important to understand exactly what their user experience is and whether they are actually super users, if that is a requirement of the position.

Again, the outcomes required of the position are an important pre-cursor to enable the recruiter to seriously examine each candidates HRIS systems experience.  Your candidate pool may be filled with people proficient only in producing payrolls and creating a handful of adhoc reports and may never even have heard of the concept of maximising the ROI of a HRIS system.

If I was employing a person who had 5-10 years’ experience in a payroll system and in payroll supervisory or management position, then I would be expecting they should be able to demonstrate a long list of improvements they’ve implemented along the way to that system.

I believe recruiters should be asking candidates to demonstrate their experience and previous outcomes in:

  • Improving data quality within HRIS systems to ensure data integrity and compliance
  • Creating cost and production efficiencies by implementing processes, creating automations and removing duplication of effort
  • Advanced report writing experience (or excel capabilities with extracted data) to increase analysis and reporting capabilities
  • Understanding the concept of and delivering  ROI on a HRIS system

How do I as an employer or recruiter, not exclude the best candidates from applying for this position?

In simple terms, employers and recruiters must truly understand the role… especially the required outcomes, as already discussed.  Where the employer stipulates particular HRIS system experience as a pre-requisite, an honest and open discussion by the recruiter will reveal whether this is a real or perceived position requirement.

Simply raise the questions voiced in this article with the employer:

  • What are the particular HRIS System outcomes required of this position?
  • Can this only be provided by a candidate experienced in one HRIS system, or are there comparable systems or transferrable skills?
  • Is there an existing Subject Matter Expert in the business that can be utilised by a Payroll Manager candidate with superior HRIS systems improvement experience, but lacking experience in the required HRIS system?
  • How can recruiters be sure that dedicated experience in a single HRIS system isn’t more than simple payroll processing knowledge? Does the candidate know how to manipulate data, write reports, analyse system efficiencies?  How will candidates demonstrate their experience in achieving the HRIS system outcomes required?

So, it’s over to the employers, recruiters and payroll manager candidates now… what is your experience?  Do you have a view point on whether HRIS systems experience is a transferrable skill?

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2014 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

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